What is an online marketplace?

Remember the world before the convenience of online commerce? Before the pandemic, before the proliferation of ecommerce sites, when the Amazon marketplace was just an “online bookstore”? 

The ways consumers (and businesspeople) shop for goods and services, as well as the ways retailers sell products, have changed radically in the past few decades, and much of it’s related to the rise of online marketplaces. Marketplace platforms have been instrumental in the creation of new ways online buyers and sellers connect in a global marketplace, enabling seamless transactions for small businesses and large alike.

When used advantageously, online marketplaces help business owners stay competitive, plus find new opportunities for innovation that lead to acquisition of new customers, business expansion, and growth. So it’s crucial for businesses to establish a presence within these online ecosystems. And as top online marketplaces continue to transform the ecommerce market landscape, understanding their role and harnessing their potential will be key to thriving in an increasingly interconnected digitalized world.

What is an online marketplace? 

An online marketplace is a website or app that lets multiple people and businesses set up online storefronts to sell products and services in one digital place. Examples of the biggest online marketplaces include Amazon, eBay, and Etsy. These ecommerce sales platforms allow third-party vendors to sell online to a wide range of shoppers, including consumers, entrepreneurs, service providers, and small and large businesses. Social-media digital platforms such as Facebook Marketplace, Instagram Shopping, Nextdoor, and Pinterest Shopping also count as online marketplaces: they offer integrated online shopping features so users can make purchases straight from their feeds.  

An online store marketplace typically comprises these components:

A platform 

This is the website or app that hosts the online business marketplace. It provides the infrastructure that lets third-party sellers list products or services and allows shoppers to browse and make purchases. 

Product or service listings 

Ecommerce marketplace sellers create listings for their products or services, which may include product descriptions, images, 3D views of products, videos, virtual reality (VR) interaction (if helpful), and pricing information. Listings are displayed on the marketplace platform for shoppers to browse and compare.

Marketing and promotion options

Sellers can take advantage of the marketplace platform’s marketing and promotional tools to increase their visibility and attract more customers. 

Payment processing 

A marketplace platform handles payment processing, allowing shoppers to securely pay for their items  using credit cards, PayPal, Apple and Google Pay, buy now, pay later (BNPL), and more.

Transaction fees

On most marketplace platforms, sellers pay fees with each sale. One exception is Craigslist, which doesn’t charge for listings.

Reviews and ratings 

Digital-business customers can rate their purchased items and leave reviews, which may help shoppers arriving later make informed decisions; an abundance of positive reviews creates a sense of which items or services are in high demand. 

Customer service and support 

A marketplace platform typically provides customer service and support for both shoppers and sellers, assisting with answering questions, plus resolving issues with ecommerce business order fulfillment, refunds, and disputes. 

Types of online marketplaces  

With the rise of the Internet and ecommerce, several types of commonly used online marketplace have emerged. Each caters to different customer needs. 

Horizontal marketplaces 

Think of a horizontal marketplace as an all-rounder, where you can find a wide range of products or services across multiple categories. For the average shopper with diverse needs, this type of site is likely to be their first port of call. Clothing, accessories, electronics, toys, movies, books…it’s all here. These platforms appeal to customers who prefer a one-stop-shop. 

Examples of horizontal marketplaces include Amazon (the home of quite literally everything these days (need a unicorn head squirrel feeder or burrito blanket?), Walmart Marketplace, and Alibaba. 

Vertical marketplaces 

Horizontal marketplaces are broad based; vertical marketplaces are specialized. They zero in on a specific category such as electronics  (e.g., Newegg Marketplace), collectibles (e.g. Collectors Corner), fashion (e.g., Depop), shoes (e.g., Zappos), or home goods (e.g., Wayfair and IKEA). By specializing, they can offer a more extensive selection. Plus, vertical marketplaces are often steeped in specialized knowledge about the product category, so they can provide in-depth guidance and support.

Service marketplaces 

Looking for a repair technician? Rather than selling products, service marketplaces connect people with service providers such as freelance designers, furniture movers, and plumbers. Service marketplaces are an efficient all-in-one-place way for shoppers to find, vet, and hire professionals, while the providers (who pay listing fees) can use the marketplace’s visibility to attract more customers.  

LinkedIn is one example of a services marketplace, along with Fiverr, an online platform supplying professionals ranging from writers to marketers. Reedsy is another example: this online marketplace helps new authors find the right editor to help them finalize their manuscripts.

Peer-to-peer marketplaces 

When was the last time you booked an Airbnb? Did you know that as you were doing it, you were completing a transaction in a peer-to-peer (PTP) marketplace? 

Peer-to-peer marketplaces enable individuals to rent to — or share products and services with — other individuals. Facilitating exchanges between private parties, these sites facilitate the efficient use of resources, which can reduce waste, and they often provide shoppers with more-affordable options. 

Aside from Airbnb, another good example of a peer-to-peer marketplace is Craigslist. There’s also ToolShare, which assists individuals who want to rent tools and equipment from each other.

Hybrid marketplaces 

The hybrid marketplaces business model combines elements of multiple types. For example, some hybrid marketplaces facilitate both business-to-business (B2B) and business-to-customer (B2C) sales. Others combine product sales with rentals or services. By catering to a wider audience with a versatile ecommerce platform for various types of users, hybrid marketplaces are positioned to adapt to market demands and trends.

Handmade-items site Etsy, whose platform accommodates both B2C and consumer-to-consumer (C2C) sales, is one popular hybrid marketplace. Reedsy is also a hybrid marketplace, as it provides connection services for the editors as well as the authors (and collects commission fees from both parties).

Characteristics of winning online marketplaces

There  are multiple variations of online marketplaces, and there are also a multitude of benefits to be enjoyed when businesses set them up in an optimal way. Successful online marketplaces:

Offer global reach 

Online marketplaces provide the means to reach cross-border customer bases that a vendor might not otherwise be able to access. By listing products or services in a digital marketplace, a vendor can often sell items to potential customers worldwide, increasing their exposure and helping them gain market share. Moreover, digital marketplaces can simplify the complexities of international transactions, such as currency conversion, shipping logistics, and shipping costs. A marketplace’s facilitation of international transactions makes it easy for vendors to do global ecommerce business. 

Provide cross-selling opportunities 

Online marketplaces allow vendors to take advantage of cross-selling —  encouraging shoppers to purchase additional related or complementary products at checkout alongside the item they have in their shopping cart. By offering additional items that are relevant and useful to shoppers, vendors can increase sales and boost their visibility on the platform. Cross-selling also enhances the customer experience, with shoppers easily finding and purchasing related products without having to leave the venue.

Are secure and trustworthy

Security is a must in online selling, and marketplaces play a crucial role in ensuring it. By vetting vendors, offering secure payment processing, and implementing dispute resolution and buyer protection policies, a marketplace provides a level of trust that makes shoppers (and sellers) comfortable. This, in turn, encourages repeat business and builds customer loyalty.

Provide easy search

In the fast-paced digital world, consumers expect to find product listings quickly and efficiently, and that holds true for marketplace sites as well as individual retailers’ ecommerce websites. First-rate search-engine functionality — and the more relaxed process of product discovery — are likely to play a crucial role in the ability of online vendors to meet customer expectations and contribute to ensuring the overall success of the online marketplace.

Collect and utilize insights about customers 

Online marketplaces provide vendors with a wealth of customer insights, empowering them to analyze purchasing habits, preferences, demographics, and other valuable data. This information can then be applied to identify areas for improvement, optimize sales and marketing strategies, and personalize product offerings. By helping vendors understand their customers’ needs, a marketplace environment can help drive their online sales higher.

Are favored by shoppers 

In the many sales channels of the modern retail environment, virtual marketplaces have become the preferred method of shopping. In fact, 77% of shoppers believe marketplaces are the best way to shop online. Why? Because they offer a wide variety of products and services, competitive prices, and the convenience of a one-stop shopping experience.  

Plus, with access to typically plenty of user reviews and ratings, shoppers can make well-informed purchasing decisions. If Bob from the neighborhood had a good experience with his plumber, or electronics shopper Sue thought her 4K Smart TV brought the family together, testimonials like these can be just what a shopper needs in order to check out. 

Need to upgrade your marketplace search?

How’s your online retail search functionality?

Algolia has improved search for many of the best online marketplaces, generating substantial bottom-line improvements. For example, European do-it-yourself marketplace ManoMano increased conversion 20% in multiple markets after switching to Algolia.

We can help you improve your online marketplace search to make your site an enduring hit with both online sellers (for instance, by letting them visually edit listings) and online shoppers.

Want to see how it works? Let’s get started.

About the authorCatherine Dee

Catherine Dee

Search and Discovery writer

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